Morning Report – Awaiting the FOMC minutes 4/8/15

Markets are higher this morning as we await the FOMC minutes. Bonds and MBS are up small.

Earnings season kicks off this afternoon with the traditional report from Alcoa. The deluge of releases begins next week with the banks reporting.

The FOMC minutes will be released around 2:00 pm. The markets will be focusing on the discussion around the removal of the word “patient” and will also want to see if the Fed believes that the Q1 weakness was transitory or not. The “weather” excuse has worn out its welcome given that the March data (payrolls especially) came in weaker than expected. The Street has been backing away from their forecast of a June rate hike, and Goldman has it as a toss-up between September and December.

The elephant in the room will be the Fed’s massive bond portfolio. The Fed owns $4.2 trillion worth of Treasuries and MBS. They have already said they do not plan to sell their MBS holdings, but Treasuries are more interesting. As of now, all maturing proceeds are being re-invested back in the market. Next year, about $216 billion will come due, which is about 5 months worth of peak QE buying.

The other big concern at the Fed is the shape of the yield curve. They generally prefer a steeper, upward sloping yield curve. The fear is that an increase in short term rates would make the dollar so attractive that foreign money piles into Treasuries, making the yield curve flatter.

Mortgage Applications increased .4% last week, which is impressive because it was a short week. Purchases were up 6.8% while refis were down 3.3%. Purchases are the highest they have been since early 2013, which bodes well for the spring selling season. That said, we are still way below normalcy, and you would have to go back to 1997 to see similar levels pre-bubble.

19 Responses

  1. Take that, KW! Frist.

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    • Brent, this was a very intriguing MR to me. The Fed is seemingly doomed to unwinding easing over a VERY long time, perhaps ten years or more. During that time, the business cycle will surely throw another curve, hopefully a hanging one this time, but enough to cause the Fed to reverse field. Having shot interest rates down for the foreseeable future the only tool left is pumping money, right? And since the FRB is really and truly NOT the federal gummint but the rock upon which much of the world’s financial community rests, it won’t pull any plugs that cause the whole thing to go down the drain.

      How far wrong am I?

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  2. Good luck with the police oversight commission NoVA. I’ll be interested to hear how it turns out.

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  3. somewhat related to the Uber story — we sometimes hire a college-age girl to babysit (typically over the summer) . i make a point of never being alone in a room with her. ever. the last thing i need is a he-said-she-said situation. and my wife drives her home.

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    • nova:

      i make a point of never being alone in a room with her. ever. the last thing i need is a he-said-she-said situation. and my wife drives her home.

      I had to drive my 15yr old daughter and several of her teammates home from volleyball practice a few weeks ago. Because my daughter had to be someplace else soon after practice, I dropped her off first, and so ended up alone in the car with the last girl to be dropped off. It’s sad, but when I realized that this was going to occur as the car slowly emptied out, I had exactly the same thoughts as you…she could say just about anything and I would be toast.

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      • Scott and Nova – this is a continuing walk on eggshells for men. I have avoided these situations like the plague, although the last one occurred with my youngest daughter’s friend in college, eleven years ago. I ran from a dorm room to find my daughter who had left us alone for about a minute too long for my comfort zone.

        I may be safe at 71. Maybe.

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  4. @Michigoose: You have the patience of a sniper. Next time . . .

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  5. @ScottC1: “I had exactly the same thoughts as you…she could say just about anything and I would be toast.”

    So that’s when you put the phone in the passenger seat and start the voice memo app recording! Can’t be too careful. People are crazy.

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    • KW:

      So that’s when you put the phone in the passenger seat and start the voice memo app recording!

      I actually called my wife and made sure I was on the phone the whole time we were alone in the car.

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  6. Just like the Uber driver did.

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    • jnc:

      Just like the Uber driver did.

      BTW, maybe I don’t understand the full situation, but if the charges have been dropped against the guy because there he obviously didn’t do it, shouldn’t they be filing charges against the woman for filing a false police report?

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  7. What if Texas’s energy industry is so fundamental to the U.S. economy that a drop in oil prices now has a negative effect on the whole economy rather than the reverse. Or, is it that the U.S. economy is (still) so weak) that a Texas downturn brings down the whole economy?

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  8. Mark, that is the $10,000 question. Undoubtedly the Fed wants some breathing room in case we do hit another recession. That said, there really aren’t any signs of overheating in the economy – no inventory build, capacity utilization is still low, etc. But, if there is a black swan event, then the Fed can’t do much more than another round of QE, and taking interest rates negative the way Europe has.

    Yellen has supposedly taken negative interest rates off the table. I think everyone is watching to see how negative interest rates play out overseas.

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  9. “I actually called my wife and made sure I was on the phone the whole time we were alone in the car.”

    good plan. but this is just crazy.

    I dated a girl in college. her sister falsely accused her dad of something. i never got the whole story, but it basically destroyed the family.

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  10. I’m pro-choice, even pro-forced abortion in some circumstance and this Twitchy piece with a ThinkProgress goon makes even me blush a little.

    http://twitchy.com/2015/04/08/fact-allergies-are-acting-up-thinkprogress-tool-stomps-feet-over-pro-abort-dws-getting-busted/

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    • McWing:

      this Twitchy piece with a ThinkProgress goon makes even me blush a little.

      Reminds of some of the people I have debated re abortion.

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  11. Ok, I laughed.

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  12. “shouldn’t they be filing charges against the woman for filing a false police report?”

    I’m sure that somehow she’s still considered the victim in this. I’d also expect to see a civil lawsuit.

    Like

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